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Covid-19 and Associated Social Distancing a Major Boost for Bank Digital Transformation in Singapore, Malaysia and Indonesia

Singapore –The Coronavirus (Covid-19) pandemic and the resulting social distancing phenomena, says Fitch Ratings in a Report in May 2020, are likely to spur banks across south-east Asia to accelerate their digital transformation strategies, with laggards likely to suffer swifter franchise deterioration as customer preferences and competition evolves more rapidly.

“We expect established, digitally advanced incumbent banks to gain from the trend as customers flock to convenience and perceived safety in times of crisis, while also reaping the benefits from potentially improved productivity as well as cost savings from closed branches in the medium term,” added the rating agency.

Many major banks across the region have reported a surge in online banking activities since the onset of the pandemic. For example, Bank Rakyat Indonesia (Persero) reported around 88% year-on-year growth in internet banking activity in Q1 2020, and a similar trend occurred in many major banks in the Philippines and Malaysia. The three large Singapore banks, in addition to higher digital transactions, have also reported a significant rise in digital account opening or usage of ‘robo-advisory’ financial planning services platforms in the same period.

“We expect this trend to persist even after the outbreak subsides, as customers who were used to cash-based and over-the-counter transactions maintain their newly adopted habits. This, coupled with the greater adoption of open banking architectures in some jurisdictions, would force banks to innovate more quickly or risk falling behind. We see the smaller banks, especially those with below-par digital capabilities, to be more at risk of the change in competitive dynamics.”

Fitch believes that banks will be even more active in pursuing growth through digital channels, with existing branches likely to be further optimised towards higher value-add, cross-selling services. “With the exception of many Philippine banks, banks in the region had not generally been relying on the expansion of physical distribution channels to drive revenue before the pandemic: we estimate that the banks in major ASEAN markets have on average been expanding revenue at a 8% CAGR over 2014-2019 while their branch networks have been shrinking by 1% CAGR.”

The shift towards a digital-channel strategy is likely to be significantly amplified now that customer preferences are abruptly adjusted. DBS Bank Ltd. For instance has reported that the cost-to-income ratio of its digital customers is roughly 20pp lower than its non-digital banking clients, implying considerable potential productivity to be gained in the longer term should the trend persists. Actual investments in IT however are likely to be tempered in the near term as banks look to cut overall costs in the face of significant business uncertainty.

“We believe that the significantly higher adoption rate of digital banking is likely to help more of the well-established, digitally advanced banks to widen their competitive advantage further against the less agile players as well as the incoming digital-only banks in the medium term. Regulators around the region have already extended the deadline for awarding virtual bank licences as a result of the pandemic, which we expect to also weed out weaker, aspiring online banks from competing for the licences,” concluded Fitch.

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Malaysian Energy Services Group, Serba Dinamik, Closes US$300m  Sukuk Wakalah in May – its Second Offering in Five Months

Kuala Lumpur – Malaysia’s Serba Dinamik issued a US$300 million Sukuk Wakalah-bil-Istithmar in May 2020 with a tenor of 3 years maturing in May 2023. This is the second Sukuk that the company has issued in the international market in the last five months.

Before this latest issuance, the company issued a 6-Year US$200 million Sukuk Wakalah-bil-Istithmar on 12 December 2019 maturing in December 2025.

Serba Dinamik Holdings, through its subsidiaries, is an international energy services group established in 1993, providing integrated engineering solutions to the Oil & Gas, petrochemical, power generation industries, water & wastewater and utilities. Its main business is in operations and maintenance (O&M), and engineering, procurement, construction and commissioning (EPCC), IT Solutions and Education & Training. The company has operational offices in Malaysia, Indonesia, UAE, Bahrain, Qatar, Singapore, India and UK.

Both Sukuk were issued through SD International Sukuk II Limited, as trustee for and on behalf of the Certificate holders and in such capacity, as issuer of the Certificates on behalf of the Obligor, Serba Dinamik International Ltd. and the Guarantor, Serba Dinamik Holdings Berhad.

The Singapore branches of HSBC and Credit Suisse were the global coordinators and principal advisers on the senior unsecured transaction. The two were joined by Standard Chartered Bank (Singapore) as joint bookrunners and lead managers. 

The US$300 million Sukuk was a priced at a coupon rate of 6.35% per annum to be paid semi-annually, which was 32.5 basis points inside of initial price guidance of 6.625%. This compared to the 6.9965% coupon rate for the US$200m Sukuk in December 2019. 

The Certificates from both issuances have been assigned a rating of BB- and BB by

S&P and Fitch, respectively. Both Sukuk certificates are listed on the Singapore Stock Exchange (SGX) and the Official List of the Labuan International Finance Exchange (LFX).

Serba Dinamik Holdings Bhd. in May reported net profit for Q1 2020 totalling RM133.72 million – a 19.2% increase from the RM112.15 million recorded in the same quarter last year.

Its revenue surged 29.9 per cent to RM1.28 billion from RM984.39 million, due to strong activities from its operation and maintenance (O&M) segment. This was due to higher activities from its MRO activity in Middle East region such as United Arab Emirates, Qatar and Oman, as well as Malaysia.  As such, Serba Dinamik declared an interim single tier dividend of 1.2 sen per share, to be paid on June 26.

Serba Dinamik group managing director and chief executive officer Datuk Mohd Abdul Karim Abdullah stressed that despite the challenging economic environment, the group had mitigated the effects of the global and regional economic downturn through its strength in the O&M market segment, in which existing contracts have been and are still being honoured.

Malaysian Mortgage Securitisation Entity, Cagamas, Raises RM705m in Hybrid Sukuk/Bond Offering in May 2020

Kuala Lumpur – Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, closed its latest offering on 22 May 2020 with a RM705 million combined issuance comprising a RM305 million 3-month Islamic Commercial Papers (ICPs) tranche, a RM300 million 3-month Conventional Commercial Papers (CCPs) tranche and a RM100 million dual tenure 1 and 2-year Conventional Medium Term Notes (CMTNs) tranche.

The proceeds from the issuances, according to the Corporation, which continues to play a major role in the Islamic mortgage securitization market in Malaysia, will be used to fund the purchase of eligible assets including housing loans and house financing from the financial system.

In April, Cagamas similarly raised RM1 billion through a combined issuance comprising a RM500 million 2-year Conventional Medium Term Notes (CMTNs) tranche, a RM300 million 6-month Islamic Commercial Papers (ICPs) tranche and a RM200 million 3-month Conventional Commercial Papers (CCPs) tranche.

“The widely expected Overnight Policy Rate (OPR) cut by Bank Negara Malaysia (BNM) recently, resulted in some housing loans originating institutions and others, to seek liquidity solutions from Cagamas and securing competitive funding rates given the continued low interest rate environment. This led to successful conclusion of the above deals which were conducted via private placement basis,” said Cagamas President/ Chief Executive Officer, Datuk Chung Chee Leong.

“We are also pleased to see that the Company’s issuances continue to be supported by investors indicating improved sentiment in the domestic capital market. This is partly due to various measures undertaken by BNM in supporting the efficient functioning of the domestic financial markets coupled with the recovery in global crude oil prices. The transactions marked the Company’s sixth issuance exercise for the year and brings the year-to-date (YTD) issuance amount to RM3.31 billion,” added Datuk Chung.

Cagamas was established in 1986 to promote the broader spread of home ownership and growth of the secondary mortgage market in Malaysia. It issues corporate bonds and Sukuk to finance the purchase of housing loans from financial institutions and non-financial institutions. The provision of liquidity to financial institutions at a reasonable cost to the primary lenders of housing loans, maintains the Corporation, encourages further expansion of financing for houses at an affordable cost.

“Market uncertainties amidst a challenging global economy and slower momentum in domestic activities, exacerbated by the recent Covid-19 virus outbreak saw investors shifting investments into haven assets. Expectations of monetary policy easing by the market coupled with the pending announcement of economic stimulus package by the Government also provided support for the Company’s fund-raising exercise”, said Cagamas President/Chief Executive Officer, Datuk Chung Chee Leong.

The papers, which will be redeemed at their full nominal value upon maturity, are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the Company. They will be listed and tradable under the Scripless Securities Trading System of Bursa Malaysia.

Cagamas’ corporate bonds and Sukuk continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAIS and MARC-1/MARC-1IS by Malaysian Rating Corporation Berhad, denoting its strong credit quality.  Cagamas is also well regarded internationally and has been assigned local and foreign currency long-term issuer ratings of A3 by Moody’s Investors Service Inc. that are in line with Malaysian sovereign ratings.

The Cagamas model is regarded by the World Bank as the most successful secondary mortgage liquidity facility. Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and Sukuk in the market. Since incorporation in 1986, Cagamas has cumulatively issued circa RM328.7 billion worth of corporate bonds and Sukuk. 

Albaraka Turk Raises TL850 million Through Four Sukuk Ijara Offerings in May 2020 

Istanbul – Leading Turkish Participation bank, Albaraka Turk Katilim Bankasi, a subsidiary of the Bahrain-incorporated but Saudi-owned Albaraka Banking Group, raised TL850 million through four Ijara (Lease Certificate) Sukuk issuances in May 2020. The issuances comprised a TL400 million issuance on 12 May 2020 with a maturity of 77 days; a TL75 million issuance on 22 May 2020 with a maturity of 53 days, a TL325 million issuance on 22 May 2020 with a maturity of 81 days and a TL50 million issuance on 29 May 2020 with a maturity of 87 days.  

The Sukuk were issued through Bereket Varlik Kiralama, a locally incorporated special purpose company, on behalf of the obligor, Albaraka Turk Katilim Bankasi.

Albaraka Turk executes regular Turkish Lira Lease Certificate Issuances in the domestic market. “With the help of these issuances, we aim to contribute to the development of Islamic Capital Market in Turkey as well as enhance our investor base,” said Malek K. Temsah, Albaraka Turk’s Assistant General Manager of Treasury, Investment Banking, and Financial Institutions.

Strong Demand Continues to Mark IILM’s May Auction of Short-term Sukuk totaling US$600m Amid COVID-19 Uncertainties and Low Oil Price Volatility

New York/Jeddah – The Islamic Development Bank Group (IsDB) has allocated US$100 million to Yemen over the next four years at the virtual pledging event for the humanitarian crisis in the country, hosted by the Saudi Government and the United Nation’s Secretariat in New York.

Dr Bandar Hajjar, President of the IsDB Group in Jeddah, said at the pledging event:

“The IsDB is committed to support the social and economic development of Yemen, which is a founding member of the Bank. Since its inception, IsDB Group has provided more than US$1 billion financing to Yemen. The active portfolio is currently composed of 17 operations amounting to US$214 million which are under active implementation despite the difficult conditions on ground.

“I would like to emphasise the resolve of the IsDB Group to continue supporting Yemen to overcome the humanitarian, social and economic difficulties that are threatening poverty alleviation efforts and disease control. This is manifested by the approval of the IsDB Board of Executive Directors to exceptionally lift the operational suspension on Yemen for the past four years to enable the Bank to continue its disbursement on its active portfolio. The Bank stands ready to join hands and cooperate with the international community, multilateral and bilateral development partners and UN Agencies to support Yemen.”

The IsDB Group’s development assistance to Yemen will amount to US$100 million over the next four years (2020-2023). This amount includes US$36.6 million already under discussion to support the Government’s efforts to fight the COVID-19 pandemic. “Currently, our teams in the Bank are actively engaged with Yemen government officials to finalise the urgent support in health, agriculture and fisheries sectors identified by the Government as requiring urgent support,” he added.

IsDB Allocates US$100m to Mitigate Covid-19 Impact and Humanitarian Crisis in Yemen

New York/Jeddah – The Islamic Development Bank Group (IsDB) has allocated US$100 million to Yemen over the next four years at the virtual pledging event for the humanitarian crisis in the country, hosted by the Saudi Government and the United Nation’s Secretariat in New York.

Dr Bandar Hajjar, President of the IsDB Group in Jeddah, said at the pledging event:

“The IsDB is committed to support the social and economic development of Yemen, which is a founding member of the Bank. Since its inception, IsDB Group has provided more than US$1 billion financing to Yemen. The active portfolio is currently composed of 17 operations amounting to US$214 million which are under active implementation despite the difficult conditions on ground.

“I would like to emphasise the resolve of the IsDB Group to continue supporting Yemen to overcome the humanitarian, social and economic difficulties that are threatening poverty alleviation efforts and disease control. This is manifested by the approval of the IsDB Board of Executive Directors to exceptionally lift the operational suspension on Yemen for the past four years to enable the Bank to continue its disbursement on its active portfolio. The Bank stands ready to join hands and cooperate with the international community, multilateral and bilateral development partners and UN Agencies to support Yemen.”

The IsDB Group’s development assistance to Yemen will amount to US$100 million over the next four years (2020-2023). This amount includes US$36.6 million already under discussion to support the Government’s efforts to fight the COVID-19 pandemic. “Currently, our teams in the Bank are actively engaged with Yemen government officials to finalise the urgent support in health, agriculture and fisheries sectors identified by the Government as requiring urgent support,” he added.

HSBC Amanah Malaysia Successfully Leads RM1.2bn Commodity Murabaha Syndication for Serba Dinamik 

Kuala Lumpur – HSBC Amanah Malaysia Berhad successfully led a consortium of banks to closing a RM1.2 billion Syndicated Commodity Murabahah (Tawarruq) Term Facility for Malaysian international energy services group, Serba Dinamik Holdings Berhad. 

HSBC Amanah Malaysia was the Mandated Lead Arranger, Bookrunner and Underwriter for the recent transaction, which included the participation of AmInvestment Bank Berhad, Bank Islam Malaysia Berhad, MIDF Amanah Investment Bank Berhad, Standard Chartered Saadiq Berhad and United Overseas Bank (Malaysia) Berhad.

The transaction is considered an important milestone in the development of the Malaysian and regional Islamic banking syndicated finance market. For this facility, HSBC Amanah Malaysia took the lead in structuring the financing package by pre-funding the initial RM900 million of the facility prior to its being upsized to the final RM1.2 billion.

The transaction, which has a tenor of five years, saw strong demand from investors and was oversubscribed 67%, which enabled Serba Dinamik to increase the facility amount to RM1.2 billion.

“We look forward to working closely with them (Serba Dinamik) again on many other successful transactions in the future as we continue to develop and deliver leading class Shariah compliant solutions for the Islamic banking industry. The oversubscription is a testament to the continuing confidence shown by investors in the Group’s business,” stressed Arsalaan Ahmed, CEO of HSBC Amanah Malaysia.

ICIEC Boosts its Business Insured by 20% in FY2019 to US$10.86bn Despite General Market Volatility 

Jeddah – The Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC), the export credit agency of the Islamic Development Bank (IsDB) Group, demonstrated its resilience through a year of general volatility marked by the intensification of trade tensions, political instability, and weak global growth, by increasing its business insured by 20% to reach US$10.86 billion in 2019 – the highest in the past decade. Over its 26 years of existence, ICIEC has cumulatively insured more than US$64 billion in support of global trade and investments.

Based on its performance, ICIEC has maintained, for the 12th consecutive year, an Aa3 rating by Moody’s – which is one of the strongest in the export credit and political risk insurance industry. The Corporation also increased its total intra-OIC business by more than 28% over the previous year, having insured a total of US$5.4 billion, involving 36 member countries. These results contribute to the OIC’s goal of reaching a 25% intra-OIC trade share by 2025.

Releasing the Corporation’s 2019 Annual Report on 29 May 2020, Oussama Kaissi, the Chief Executive Officer of ICIEC, expressed optimism at the Corporation’s prospects for 2020, stating: “We are well-positioned to weather the effects of the ongoing Coronavirus-19 pandemic and continue our strong business performance as a direct result of the robust pipeline developed  in 2019”.

“These results demonstrate ICIEC’s growth and continued commitment to delivering on its mandate of supporting trade and investment in our 47 member countries – assisting in their economic development, diversification and prosperity. Considering the significant growth, our Corporation is on track to reach its 2019-2020 Business Plan targets for business insured,” he added.

ICIEC attributes the impressive 2019 results to various operational initiatives, including: underwriting improvements, risk management and technical reserving practices, a strong commitment to continuous professional development, as well as our partnership with international players in the industry.

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